Bridging finance is a short-term loan that is typically used to bridge the gap between the purchase of a property and the sale of another property or the receipt of long-term financing. It is often used by property developers and buy-to-let investors to fund property purchases quickly, allowing them to take advantage of opportunities that may otherwise be missed.
How Bridging Finance Works
Bridging finance is designed to be a short-term solution. Typically, the loan term is between 6-12 months, although it can be as short as a few weeks or as long as 24 months. The loan is secured against the property being purchased or another property owned by the borrower. The lender will require a first or second charge on the property as security.
The amount of the loan is usually based on the value of the property being purchased, rather than the borrower's income or creditworthiness. The lender will typically provide up to 75% of the property's value, although some lenders may be willing to provide up to 100% of the purchase price in certain circumstances.
Bridging finance is often used by property developers to fund the purchase of a property that requires renovation or development. The loan can be used to purchase the property and cover the cost of the works, with the intention of refinancing or selling the property once the works are complete. This allows the developer to complete the project quickly and take advantage of the potential profit.
Buy-to-let investors may also use bridging finance to purchase a property quickly, for example if a property is being purchased at auction, which they can then refurbish and rent out. Once the property has been renovated, the investor can then refinance onto a longer-term buy-to-let mortgage, freeing up the bridging finance.
Advantages of Bridging Finance
One of the main advantages of bridging finance is the speed at which the loan can be arranged. Bridging finance lenders are typically able to make a decision on a loan application within a matter of days, and the funds can be released within a few weeks. This can be crucial for property developers and investors who need to act quickly to secure a property or take advantage of an opportunity.
Another advantage of bridging finance is the flexibility it provides. The loan can be used for a wide range of purposes, including property purchases, renovations, and refinancing. This makes it a useful tool for property developers and investors who need to be able to adapt quickly to changing circumstances.
Finally, bridging finance can be used to purchase properties that may not be eligible for traditional mortgages. For example, a property that requires significant renovation work may be deemed too risky for a mortgage lender. However, a bridging finance lender may be willing to provide funding based on the value of the property once the works are complete.
Conclusion
Bridging finance can be a useful tool for property developers and buy-to-let investors who need to act quickly to secure a property or take advantage of an opportunity. The speed and flexibility of the loan make it an attractive option, although it is important to remember that it is a short-term solution and should not be used as a long-term financing option. As with any type of finance, it is important seek professional advice before making any decisions to determine whether it's the right option for you. Major Financial Services can help you explore all the options available to you and find the best deal for your circumstances.
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